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Rupee strengthens amid speculation of policy steps

Indian rupee on, Wednesday, recovered from its fresh all-time low and strengthened against US dollar after Bloomberg reported that the government may announce measures to halt currency decline in a economic review meeting scheduled this Saturday.

The home currency closed at 72.19 a dollar, up 0.71% from its Tuesday’s close of 72.70. The home currency opened at 72.75 per dollar and touched a low of 72.91 in morning trade.

Prime Minister Narendra Modi to review health of the economy during the weekend and may announce measures on rupee and oil after meeting, Bloomberg reported quoting government official. The government is also not ruling out an increase in interest rate the official told Bloomberg.

“While it is difficult to really decipher a statement by government official on a monetary policy decision (that falls purely in the purview of the MPC), it does raise the case for a policy rate hike, albeit still on the scheduled October 5th MPC policy. We still do not think a pre-emptive rate hike over the weekend is warranted at this point and the policymakers can explore other tools as well", said Madhavi Arora, Economist, FX & Rates- Edelweiss Securities Ltd.

“INR’s effective reaction beyond the knee-jerk today will depend on the severity of measures adopted by the policymakers", Arora added. Edelweiss Securities expects the currency to remain in the range of 69-74 for the rest of fiscal year 2019.

Data from commerce ministry which showed better than expected trade deficit, also cheered the traders. Trade deficit for August stood at $17.40 billion, down from $18.02 billion a month ago. Exports grew 19.21% to $27.84 billion while imports rose 25.41% to 45.24 billion, PTI reported.

From past few weeks, rupee along with emerging currencies falling on the concerns of contagion from other emerging markets and escalating trade war between US and China.

Traders are cautious ahead of key consumer price inflation and index of industrial production data due after 5.30pm. According to Bloomberg estimates, Index of industrial production will be at 6.5% for July from 7% a month ago. Retail inflation may come at 3.78% in August from 4.17% in July.

The 10-year bond yield ended at 8.135%, from its previous close of 8.181%. Bond yields and prices move in opposite directions

Benchmark Sensex Index rose 0.81% or 304.83 points to 37,717.96. Since January, it has gained 9.86%.

So far this year, the rupee has weakened 12.3%, while foreign investors have sold $538.20 million and $6.38 billion in equity and debt markets, respectively.

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